Microsoft exec reveals how much the company really makes from Windows

13.56
Trefis
DELL: Dell logo
DELL
Dell

Charles Songhurst, general manager of Corporate Strategy at Microsoft, revealed at a recent conference that Microsoft makes about $50 from PC makers (e.g. Dell, Toshiba, HP) for a copy of Windows sold along with a $1,000 PC.  Microsoft has avoided sharing this information in the past since the difference between Windows pricing for PC makers and retail pricing is significant.  Songhurst gave the example to illustrate a broader point which is that Microsoft seeks to make 5% of the PC sale price.

However, one detail that was implicit in his example was that $50 is how much Microsoft makes for a copy of Windows standard edition like Vista Home Basic and XP.  Premium Windows versions like Vista Business, Vista Home Premium, Vista Ultimate, XP Professional, XP Media Center and XP Tablet Edition generate more revenue (~$70) for each copy sold to PC makers.  What Songhurst didn’t reveal is that Microsoft has been slowing the deterioration of revenue per copy by increasing the number of premium editions and shifting more customers to premium Windows.  The mix of premium copies sold to PC makers has increased from 60% in 2006 to about 70% in 2008.  So rather than falling PC prices translating to less Windows revenue per PC, as one would expect based on Microsoft targeting 5% of the PC sale price, the company has actually been earning more per copy by selling more high-priced premium editions.

As a result of the rising premium mix, Windows Pricing for PC Makers has increased from an average of $61 in 2005 to $63 in 2008.  We believe that this trend will actually reverse (falling premium mix) over the Trefis forecast period due to greater demand for PCs coming form emerging markets where purchasing power is lower and due to the rise of netbooks (low-cost notebooks that run minimal software).

Relevant Articles
  1. We Put PLX Technology to the C.H.A.O.S. Test
  2. With Icahn Gone Shareholders Approve Dell’s Privatization
  3. Carl Ichan Bows Out Of Dell’s Privatization War
  4. Strong Acquisition Target Poised To Challenge In Fat Loss And Skin Care Markets
  5. 5 Hottest Dividend Share Buys From Carl Icahn As Well As His Total Portfolio Overview
  6. Dell’s Margins Slip Even As Revenues Stabilize

Within Microsoft’s content on our platform, you can see how the mix of premium editions can impact Windows Pricing for PC Makers and how it ultimately impacts Microsoft’s stock.